New York PSC caps community solar early termination fees

The New York State Public Service Commission strengthened the consumer protection standards for the state’s rapidly expanding distributed energy resource market. Specifically, early termination fees for community distributed generation project members are capped, production guarantees will be required for on-site mass market solar projects and escalation clauses in contracts between customers and developers must be clearly disclosed.

“Governor Cuomo’s “Reforming the Energy Vision” strategy to create a cleaner, affordable and more resilient energy system is working,” said Commission Chair John B. Rhodes. “Consumers are being presented with new ways to save money and conserve energy through Distributed Energy Resource providers. As these new energy resources help create a cleaner and more resilient power system here in New York, we must ensure that consumers are protected from potential fraud and unscrupulous contract provisions, aiding consumers while ensuring the integrity of this bourgeoning market.”

Distributed energy resources are technologies that generate or manage the demand of electricity at different points of the grid, such as at homes and businesses, instead of centralized exclusively at power plants. Distributed energy resources can include solar, wind, combined heat and power, electricity storage, electric vehicles and anaerobic digesters. These resources are typically smaller in scale than the traditional generation facilities. Community Distributed Generation allows customers who cannot site solar, small wind or other distributed generation on their own property to participate directly in off-site projects and reap the benefits of these sources of clean energy.

As the costs of these clean technologies continue to fall, the Commission anticipates increased penetration of Community Distributed Generation. The Department of Public Service has previously made recommendations with the aim of creating additional opportunities for customers to participate in these arrangements. With the anticipated growth of these technologies, the Commission will continue to ensure that these customer opportunities are balanced with appropriate oversight measures.

The Commission’s experience in regulating energy services companies (ESCOs) in the gas and electric supply market has demonstrated that oversight is needed to prevent false promises, exploitative and predatory pricing, and other deceptive or intentionally confusing behavior in marketing to residential customers and small businesses. In October 2017, the Commission issued an order adopting rules, requirements and business practices for distributed energy companies to protect customers and ensure market fairness.

These rules were collected in the Uniform Business Practices for Distributed Energy Resource Suppliers (UBP-DERS). The UBP-DERS applies to companies that provide residential rooftop solar systems, on-site generating systems for small business, large community-solar projects or other Community Distributed Generation systems. The order approved by the Commission on March 14 will ensure that customers do not face unreasonable clauses in their contracts while still allowing for flexibility and innovation in those markets. The Commission approved additional provisions to the UBP-DERS regarding termination fees, production guarantees and annual escalation costs. Termination fees for Community Distributed Generation projects will be capped at no more than $200. Additionally, termination fees must be waived where the customer provides appropriate notice and finds a replacement; companies are also encouraged to waive termination fees where a replacement customer is available on a wait-list.

The new rules require that a production guarantee must be included in the contract for any project where the customer pays a fixed amount regardless of actual generation, including purchase contracts and lease contracts with a fixed monthly fee. A production guarantee is the installer’s commitment that the project’s design is accurate. It ensures that all relevant factors are factored into the design process, and that all variables were accounted for. This guarantee is often backed up by monetary compensation if the target kWh is not met for one year of the system’s production.

Finally, the new rules require clear disclosure of the escalation rate, methodology and/or formula, including illustrative examples of the resulting rates. Escalation rates are a common feature of long-term distributed energy resources contracts. These rules will be effective for new contracts signed after May 1, 2019. This March 14 decision updates the UBP-DERS to reflect these new rules and directs the utilities to update their tariffs to include the new UBP-DERS.